Budgeting in the budget

Did anyone really think that Israel’s deficit of NIS39 billion would vanish, as its citizens applauded loudly from the sidelines, while its talented magicians replaced the deficit with a large white rabbit?

Deep down and not so deep down, everyone should have known that a deficit needs to be funded at some point to avoid more serious financial consequences in the long run. Much time and energy has gone into producing many articles and columns projecting how much the average Israeli family will be impacted by the changes in the budget – child benefit cuts, income tax and VAT hikes to name just a few. But if you are reading those articles and focusing on averages and not the specific impact on your financial situation you’re missing the important point.

Average means just that! Everyone’s situation is different, and all that financial commentary is not specific to you and your unique situation. The budget decrees are still being passed in the Knesset. However, as the changes creep in they will impact people in many different ways. The following are a few of the changes that seem most likely to affect the majority of people.

• 1.5% general increase in marginal income tax rates from the beginning of 2014

• VAT increase from 17% to 18%

• Increase in tax on consumer goods such as alcohol, cigarettes and an assortment of luxury items

• Substantial new taxes on housing

• New reporting requirements for olim with assets abroad

• A new tax on all distributions from trusts

All families with children under the age of 18 will also be impacted by the reduction in the child allowance, with a decrease of approximately NIS1,100 per child per year.

The question we should be asking ourselves isn’t how these cuts will impact the average family, but rather how our family budget will be directly affected. The average family might lose an entire month’s salary – but the fact that the statement contains the word average means that some families will lose more and others less. Ask yourselves how it’s going to impact your family and start putting in place steps to account for expected drop in revenue.

On a macro national level the decision was made to cut the deficit, and a proposed plan was presented. Unsurprisingly all the sectors affected protested vehemently, trying to make sense of the impact of the cuts on their critical interests. On a micro family level the situation is often similar. The responsible adults acknowledge that their expenses are too high, overdraft is maxed out, loans are draining the monthly budget and attempts are made to cut back. However, cutting critical elements (aren’t most of our expenses critical in different ways?) is not simple. Even when we sincerely want to make changes, it’s not easy to identify the less important elements that can be sacrificed, and have the willpower to follow through and ensure they are cut.

This is where a financial education comes into the picture. Educating yourself on financial matters that pertain directly to you allows you to go beyond generalities, half-truths or grey areas into details where you can find your relevant truth. Financial education gives you peace of mind and allows you the confidence to implement your personal financial plan in the most secure and optimal way for you personally, thereby improving your quality of life and helping you provide for your family. While many people delegate authority in different areas of finance, tax returns and financial investments, you can’t delegate responsibility. Everyone needs to take their personal responsibility and that necessitates going beyond generalities and inexactitudes bandied around by the media.

So how are you going to incorporate the budget changes into your family’s day-to-day spending? Are you going to be reactive and let the new circumstances cause you financial harm, or will you prioritize where your remaining funds will go? Take the time now to reallocate your budget. And do it proactively, rather than have the bank force you to deal with an out-of-control overdraft. Take a look at your monthly expenditures so that you can allocate your resources according to the priorities that you set. If your financial pie has shrunk, you can either attempt to earn revenue from new sources or you’ll be forced to cut back.

If you were having a hard time financially before the new budget, your situation will become substantially harder. Don’t throw up your arms in despair. Now might be the time to increase your working hours, or try and find ways of reducing your taxes. For example, did you know that you can apply for government credits for children with learning disabilities? Too many families are unaware of this simple fact. What other breaks are you eligible for? Be proactive – no-one will take responsibility for your finances if you don’t. Invest now in your personal financial education: it’s one investment that no-one can take away from you.